Yen Breaks Through 100

After flirting with the 100 yen to a dollar mark for weeks, the USD finally smashed through this psychological important hurdle indicating further weakness in the yen. The USD/JPY traded as low as 101.20 early Friday, down two percent from Thursday’s 98,75, the lowest level seen in four and a half years. This record low represents a victory for Prime Minister Shinzo Abe’s “Abenomics” and his deliberate efforts to weaken the yen and strengthen economic growth through monetary easing.

In an effort to counter the weaker yen and boost it's competitiveness, both Australia and South Korea both cut their interest rates during this week, sparking what seems as a currency war among Asian trading partners. Both countries cited their strong currencies as one of the reasons for their 0.5% cuts. A South Korean finance ministry official said Friday that Seoul was worried about the pace of the yen’s decline. The yen has depreciated 25% since the decline started in October/November.

During the recent G-20 meeting, Japan's Minister of Economy Akira Amari reiterated that Tokyo has no intention to manipulate currency levels. Analysts expect a further fall in the yen as the USD/JPY finally got over the 100 psychological hurdle. A continued downward pressure on the currency was underscored by data published on Friday, showing that Japanese investors have finally reversed their relentless selling of foreign bonds. Japanese investors have been net sellers of foreign bonds over the last 12 weeks.

The Nikkei index soared to a four and half year high, up 6.5% only this week. The US dollar was buoyed by new strong jobless claims. The last weekly report published Thursday confirmed the stronger than expected monthly nonfarm payrolls for April, when jobless claims data fell to its lowest level in five years. Signs of a steady U.S. recovery has already fuelled speculation that the Federal Reserve (FED) might scale back its aggressive quantitative easing.

After reaching 99.95 in early April, the USD stalled one month against the yen. The EUR/JPY simultaneously rose to 13191, its highest since January 2010. There are no major changes in oil prices, copper and other commodities. Gold fell back from its high on USD 1474, and has recovered to 1462 in early Asian trading.


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